Scott McCartney, who writes the Wall Street Journal’s “Middle Seat” column, has some thoughts about what consumers can expect from airlines, now that oil has hit $130 a barrel. He says that “he change in oil prices from a year ago to today translates into $24.6 billion in added fuel costs for passengers and cargo airlines on an annualized basis,” which is more than the airline industry has ever earned– its best year saw $5.3 billion in earnings.
So what now?
It’s very difficult for airlines to simply raise prices to levels that cover their higher fuel costs. Raising prices chokes demand: If tickets get too expensive, business travelers make alternate plans, pick cheaper airlines or buy discounted tickets further in advance. For vacationers, if prices get too high, they don’t buy or they switch to cheaper destinations. Airlines can price themselves right out of a sale.
So to avoid that, carriers have been slap-happy with fees added at the airport, not at the ticket purchase point. A family heads off to Disney because they got a good fare – then find themselves paying $300 extra at the airport in baggage fees. Fees are essentially fare increases that airlines hope won’t choke demand.
But slapping fees on customers here, there and everywhere won’t solve the problem. Airlines will have to make big cuts in capacity, eliminating flights that just aren’t profitable with oil at $130 a barrel (as of Wednesday morning). Fewer flights means skimpier schedules for many travelers. More important, it means higher fares. The price of flying has to go up if airlines are to survive.
After AMR, the Deluge [WSJ]
(Photo: So Cal Metro )
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I’m sure the price of oil will hit $260 per barrel within a year. Soon only the ultra-rich in their private jets will be able to afford to fly.
Raising fares doesn’t solve the essence of the problem. The airlines skate a very thin line with unions, equipment, routes & capacities, etc. Even though they can cut capacity and raise fares (at the cost of lowering demand, thus lowering capacity more) they can’t really lower total costs so quickly. That’s why bankruptcy is such an attractive option for some carriers, they can restructure many aspects of their business that they couldn’t under normal circumstances, and then start the slow death spiral all over again.
Here is a hint for any corporation that is seeing declining profits- cut the salary and benefits of your CEO and upper management in half.
So… how’s that airline industry deregulation working out, eh?
i wrote a page on this today.
and on top of everything, AA pilots are threatening to strike if they don’t get better benefits.
The airplanes in the shot are way different sizes. The Delta looks to be a 777 while the northwest I believe is a A320, a much smaller plane.
Looks like SFO too.
Yeah, there really should be high-speed rail in America. The regional jets are overused. Rail to get to the big hubs and planes for long-haul journeys.
Anyone see that AA is now charging for ANY checked baggage now, not just a 2nd bag?
@FLConsumer: uh, you missed the 100+ comment post on the topic eh?
Better change the title. Oil is now $135 a barrel!
shut down the damn airports.
Yeah, the one part of security theater that made flying BETTER was when they were ACTUALLY ENFORCING carry-on bag limits. It friggin’ PISSES ME OFF when other people disobey the limits; it makes being inside the plane so much more unpleasant, makes getting on and off take forever, etc. Charging for checked baggage is just going to make that much, much worse — unless they simultaneously start vigorously enforcing carryon limits.
@spinachdip: I’ve been wishing for a high-speed rail network in the midwest, radiating out from Chicago, for YEARS. We have all these great mid-large-sized cities (St. Louis, Minneapolis, Indianapolis, Madison) and college towns with great labs &c (Ann Arbor, Madison, Chambana), and they’re all in that distance where it’s close enough to drive but takes a little too long to drive for a one- or two-day trip, but not far enough apart to make flying worth the hassle (you can frequently drive Chicago to St. Louis in about the amount of time it takes to fly it, because of check-in and delays). An efficient, high-speed rail network radiating out from Chicago could link all these great cities and major research universities MUCH more efficiently and would be a real economic boon for the region. (And I guess that’s what the economists and pundits and development experts are saying — the midwest has to develop as a region to be globally competitive. We have lots of great resources and world-class institutions, but they tend to be spread out and not coordinated across state line.)
@ARP: I just don’t see how rail solves anything. Most Americans DON’T live in big cities – they may live near them, many don’t, but the population is now mostly suburban. How does regional rail get me from my house to my work and back? To the store? To my kids’ soccer games and swim meets? Even bus service is unavailable to the majority of Americans. These are the miles that’s eating up oil, not trips to Disney World or business trips to Chicago from Philly. It’s Mom and Pop driving everywhere to do anything.
Not everyone lives on the East Coast, and even those who do don’t always have access. I live less then 2.5 hours from DC and there’s very little public transportation available (and that’s up from none five years ago).
Sure, rail would help with long-distance personal travel. But how much of the total mileage driven does that encompass? I’d argue not much. You’re talking about spending billions to help reduce maybe 5% of this nation’s driven miles each year. Interesting data here
@BaysideWrestling: What does getting to work and back have to do with the subject at hand, which IIRC, had to do with the airlines and how oil prices are eating them alive. Rail service on the same routes would indeed be a solution. Rail uses a fraction of the fuel that airlines use. So you have to drive to the train station. How were you getting to the airport? By rickshaw?
Now, I would love to see a thread addressing the more nettlesome problem (to those of us who are not frequent fliers) of why most of us can’t take the bus even if we wanted to. I could go on about my own area, but that rant takes awhile, and I’d really be going off-subject. Maybe I can flesh out the rant (I think I posted it as a diary at DailyKos), submit it to the admins, and see if they’ll publish it for our co-ranting pleasure. Anybody with me?
I really think that what’s at play here are some fairly simple ideas. In general, with the rise of other industrial countries – aka Asia – demand for stuff is up and so is the cost of labor as the countries rise.
The bottom line, things are gonna cost more here on out.
Everybody bemoans the horrible pay and working conditions for people in “3rd world” countries. As they should. But here’s the thing, if we don’t exploit, we don’t get cheap stuff. simple. I’m fine with that (paying more – not exploiting).
Now, add to that the idea that most people live in suburban areas. IMO that was a post-war policy mistake that we will be paying for now. I WISH we had high speed rail.
Sprawl in this country is gonna have to re-centralize. Start welcoming back the strange thing called a “town”.
This is how much oil costs now, give or take a few ups and downs. We need to toughen up and adjust to it…fast.
p.s. – trains cost so much (now) because nobody uses them…
I’ll be the first to say this: airlines have their days numbers. More and more people are getting upset when they add fees. For right or for wrong, people are upset.
The more fees they add, the more fustrated people get. As people get frustrated, they’ll find other ways to get around. Whether by bus, rail, sea, or Southwest.
The market is a great place. I’d start investing into grayhound, peter pan, et al.
I remember my old man (worked with the FAA for yours) saying that for each extra pound of carried weight, it took approximately 1 extra gallon of jet fuel for the flight. If that ratio is accurate, a $15 checked bag would have to weigh less than 5 lbs to even come close to breaking even.
The airlines could start by not painting their fleet and realizing the associated weight savings.
@betatron: Congratulations on the most asinine comment of the thread.
So with all these extra fees I’m going to be charged to check my bags, they better not lose or damage a single piece.
To add this story though, if airlines don’t become more transparent about fees/ticket prices, people are going to get turned off real quick. The iron horse may be making a comeback.
@johnva: Yes and no. Baggage and passengers do greatly increase the weight of the plane, which will have an effect on the fuel usage. I wouldn’t know what the actual costs are, but flying an empty plane will be cheaper than flying a laden plane.
But, the fee is definitely not proportional to this because the fee would have to be calculated by weight of the bag. I think for overly heavy bags, they already charge by the pound, but under a limit there is a flat rate or, in the past, a free bag check. What’s bothersome is that they lose out on under-laden planes, because they don’t collect enough in ticket sales to cover the flight expense, hence the volatile schedules and rollercoaster ticket prices. I get that luggage is, in their eyes, an unnecessary burden, but they already have a mechanism in place to offset the losses from such burdens. So… raise ticket prices, opaquely if they wish, and let the market compensate.
It’s all screwy, but think of it like taxes. They’re collecting money on a claim that they can’t justify, but for the purposes of greasing the service infrastructure to keep things in motion. Why collect money in a manner that people don’t want to deal with, especially when people have long been conditioned to rising prices?
@grebby: Bag fees also help offset the costs from loss of labor. Most on-the-job injuries at airlines are from employees who have to lift bags.
@WayDownRiver: The steamer trunk ladies would have to pay fees for oversize and likely overweight luggage.
@linus: I disagree. I think more people will drive for regional travel, but plane is the realistic option for any 6+ hour drive. And since we don’t have high-speed regional rail and Amtrak is in shambles, we’re stuck…and they know it.
@BaysideWrestling: I think you misunderstand, my proposal was on high-speed regional rail. Meaning going from Chicago to St Louis, New York to Washington DC, etc. instead of flying. For your daily commute, it depends on your town. BTW- I know a lot of people that drive 5 minutes to the train and the take the train downtown to work. It’s not that crazy and if more people did it, gas prices would be lower. And don’t even get me started on towns with no meaningful public transportation system. People complain about the money, but they pay for many times over in road maintenance, gas prices, gas usage, parking, infrastructure costs, etc.
@hypochondriac: I hate it when all the blame is placed on crude oil prices. Yes in contributes to the price of fuel, but from what I heard refinery capacity is a bottleneck. Thats where a majority of price increases in fuel come from.
Well, the four main causes of that bottleneck are:
(a) The US government, for overthrowing the Iranian democracy in 1953 and installing the Shah who did as the US and UK wanted by *not* investing in their own refineries.
(b) The US government for overthrowing Saddam, destablizing the country and throwing it into chaos, preventing regular oil output. Despite US government claims, Iraq’s actual oil output is down, and their people actually *were* better off under Saddam considering the political, economic and social situation.
(c) The US government, for encouraging people to buy SUVs instead of buying smaller cars and conserving gas, and for not encouraging automakers to make more fuel efficient cars. Had people bought smaller and more fuel efficient cars for the past eight years, approximately half as much oil would have been used and the US could have stockpiled the rest to keep prices down.
(d) The US government, for propping up oil regimes and being oilmen themselves. Anyone who believes George Putz actually pushed the Saudi regime to increase production is fooling themselves. Those people are in bed together, in both meaning of the word – why else do you see George Putz holding hands with Saudi oilmen in every photo?
@ARP: Some might, but I planned an Ohio to Florida vacation months ago with the intent of driving 13 hours instead of dealing with the hassle of an airport and the cost of tickets. I doubt the five us would be able to get there and back on any airline (and car rental in FLA) for the $300 worth of gas we’re probably going to end up spending.
@ARP: “BTW- I know a lot of people that drive 5 minutes to the train and the take the train downtown to work. It’s not that crazy”
For sure — point 1: You can drive the world’s cheapest, most fuel-efficient econobox to the train station if you MUST be a two-car family to function. I used to live in a pretty ritzy suburb where the parking lots at stores and places were full of Audis and BMWs and Lexuses, and the train station lot going into the city was full of 10 year old Civics and boxy Geo Metros.
Point 2: You can be a 1-car family. Drop the train-commuting spousal unit at the train, even if it’s just a few minutes up the road, and spouse 2 can drive on to work or errands or whatever.
@P_Smith: (c) The US government, for encouraging people to buy SUVs instead of buying smaller cars and conserving gas, and for not encouraging automakers to make more fuel efficient cars. Had people bought smaller and more fuel efficient cars for the past eight years, approximately half as much oil would have been used and the US could have stockpiled the rest to keep prices down.
Really? The government encouraged people to buy SUV’s? I believe consumers were making there own decisions now and then. High MPG autos are only now becoming fashionable. It’s not some government intervention or persuation, its the markets speaking. You can’t deny Mother Econ, she wins every time.
@Eyebrows McGee: @
href=”#c5831738″>BaysideWrestling: You do it like we did in Spain, you build metropolitan subsystems that feed it. If you ever go to Madrid or Barcelona you will see, it also doubles as a metropolitan mass transit system so you got a bonus local traffic off the streets.
dam it! lost my first response there.
Was supposed to say an excellent idea, as long as the gov doesn’t choke them to death afterwards. Also you will fight the million and then some other things that will try to eat the budget.
@Steaming Pile: I would take you on that, but remember, my outlook is of someone who is in the US only about 4 to 5 months out of the year.
@HIV 2 Elway: U.S. government policies contributed to making SUVs an attractive choice, yes. People bought them in part because gas was cheap, because of tax breaks for “light trucks”, and because the government didn’t bother to create effective fuel efficiency standards. These things are a direct result of government policy.
Really? The government encouraged people to buy SUV’s? I believe consumers were making there own decisions now and then. High MPG autos are only now becoming fashionable. It’s not some government intervention or persuation, its the markets speaking. You can’t deny Mother Econ, she wins every time.
To some extent there was government involvement, in the name of the tax deduction that could be claimed for “trucks” purchased for “business purposes”. Section 179 depreciation deduction, specifically. Back when it was first passed, there weren’t really too many consumer vehicles that were above the minimum weight required to claim the deduction, but as SUVs became more popular, there were significant tax benefits to purchasing, for example, an Escalade.
High speed rail passenger service. Now.
Want to know something else that costs airlines more than their profit margin each year? Delays. $19B last year, and that’s just the cost to the airlines themeselves.
Maybe they can do a better job, and make more money. Like the rest of us.
[money.cnn.com]
@Eyebrows McGee: Or you can get off your fat ass and run errands on a bicycle (not directed at you personally….I have no idea what your ass is like
)
Change a few habits: instead of making one big trip to the grocery store to by everything you need for a week or two, stop by on your way home each night and get what you need for the day then and there. Make one trip a month to stock up on the things that really pay to buy in bulk. You just reduced your gas for grocery shopping by 75%.
Ride a bike to the park-and-ride and then take a train or bus into town to go to work. Or work from home if you can. Or for your night out on the town (bonus: no chance of a DUI). Patronize restaurants and shops in your area instead of driving across town. And ride your bike when you go to visit them.
Find recreational opportunities close to home instead of flying to Cancun or Orlando. There’s not a state in this country that doesn’t have plenty of ways for a family to enjoy themselves.
Have your kids walk or bike or ride the bus to school, like we used to do back when I was growing up. They need the exercise too.
And yeah, start taking the train for family holidays. Yes it takes longer to get to where you want to go, and coverage sucks outside of the Northeast. But train travel is a lot more relaxing than just about any other way of getting around. You get to enjoy the scenery, you can get up and walk around any time you want to, and there’s no hassle and stress like you get from driving or flying.
Cheap oil is a major reason why we’re having problems with lack of exercise and obesity. We’ve gotten used to having our machines move us around. Breaking those bad habits is going to be painful for some people but we’ll be better off in the long run.
You don’t have to spend hundreds of dollars a month on gas. You choose to because you’ve gotten used to depending on cars. I’m actually spending less on transportation now (with prices at $3.80/gallon) than I did back when gas was $2 a gallon, and I live in Colorado, not one of those cities out east where things are even closer together and transit is better developed.
This idea is reactionary. I check my bag to try to reduce my participation in the kabuki routine that is getting through the security line. I can throw a bunch of stuff into my check bag and not have to take out my DOB kit in the line. I suspect others do the same – well, not anymore.
At the end of the day, it doesn’t matter where my bag goes (in the cabin or in storage), the plane is using X fuel to transport that extra 10lbs of luggage.
The airlines should determine a threshold for “reasonable luggage weight”. Everything under that is rolled into the cost of the ticket. Everything above that has to be purchased with luggage credits, either at ticket purchase time or at check-in time. In the end, every bag has to be tagged as being “paid for” before it or the passenger is allowed on the plane.
Simple plan. But because airlines are so reactionary in their thinking, it will not come to pass anytime soon. And in the mean time more chaos will ensue at the airport.
@HIV 2 Elway: Because SUVs are classified as light trucks, a small business owner could get a massive tax break on one if he claims he uses it for business. And believe you me, there’s a lot of SUV owners who took advantage of that.
The tax incentives for fuel-efficient vehicles are dwarfed by comparison.
@Corydon: actually, you can also get a dui on a bike.
just an fyi there.
@Corydon: My personal ass could use some shrinkage. Unfortunately, riding a bike makes it bigger. I tend to bulk when I get muscley! I have a whole separate set of pants for when my ass becomes bike-riding enormous!
But yes, points agreed. Where I grew up, the one-car family mostly dropped hubby at the train station when it was raining. My parents didn’t have two cars until my dad had a job off the train line. My husband and I keep discussing ditching the second car in favor of a scooter, but we’re still a little hesitant. (I have to cross a highway bridge to get to work, though it’s only a couple miles; he has to drive all over the state to rural courthouses. So he might need the car on a day I have to cross the bridge, and that’d worry us.)
@rioja951: That MIGHT work in the megalopolis of DC to Boston,. but for most of the country, the distances involved make it unfeasible. High speed rail isn’t going to work with routes like Milwaukee to St. Louis or Baltimore to Chicago, let alone all the small towns in between. The U.S. isn’t Europe – our population density, for much of the country, is simply too low for mass transit to be feasible. You can argue it’s the result of poor urban planning and people need to move back into cities, but that’s not gonna happen. Mass transit and high-speed anything short of airlines just isn’t going to work for most travel in America. The country is too damn big for it to work.
@HIV 2 Elway: Really? The government encouraged people to buy SUV’s? I believe consumers were making there own decisions now and then.
So the tax break George Putz gave to SUV buyers was not encouragement in your mind? And you “think” it had nothing to do with the number of purchases?
@BaysideWrestling: “High speed rail isn’t going to work with routes like Milwaukee to St. Louis or Baltimore to Chicago, let alone all the small towns in between.”
Why not? And midwestern high speed rail proposals don’t typically call for hitting “all the small towns in between” — they call for, say, a Chicago-to-St. Louis route with stops in Joliet and Peoria, that’s it. Most of us who live in the more rural parts of the midwest are used to the idea that we have to go to “collection points” to get anywhere or buy any thing. That’s what rural cities are for! The idea isn’t to serve every city in the state, but to put through major lines with stops in regional centers that are typically already transportation hubs.